Brazil FinMin: From Currency War to Trade War

If nothing else, you gotta love this guy for his military-industrial complex of sorts where economic misunderstandings forever threaten to take us to the brink of all-out conflict. A few months ago, Brazilian Finance Minister Guido Mantega had the international press corps by the ear after his statement that the world was engaged in "international currency war." Perhaps tired of that phrase and desiring attention once again, he's now moved on from that shtick in proclaiming that we are on the brink of outright "trade war." Being more of an equal opportunity complainer this time around, Mantega now identifies not just the US but also China as being currency manipulators. I'm somewhat surprised that he would so vocally single out another important emerging economy, but hey, maybe things are really becoming dire in Brazil when it now runs a current account deficit with the United States, of all countries:

“This is a currency war that is turning into a trade war,” Mr Mantega said in his first exclusive interview since Dilma Rousseff, Brazil’s new president, took office on January 1. His comments follow interventions in currency markets by Brazil, Chile and Peru last week and recent sharp rises in the Australian dollar, the Swiss franc and other currencies amid an exodus of investment from the sluggish economies of the US and Europe...

Mr Mantega, [Brazil's] finance minister since 2006, coined the term “currency war” in September before launching controls on foreign portfolio investments in Brazil aimed at stemming an increase of 39 per cent in the real against the dollar over the past two years. He said that most of Brazil’s measures last year were directed at the spot market but the focus had switched to the futures markets, which he said were now behind the upward pressure on the currency.

On Thursday, Brazil’s central bank launched a surprise measure to curb short selling of the dollar against the real by onshore banks. “You can expect more measures on the futures market,” he said.

He said currency manipulation would be on the G20 agenda this year. Brazil would also lobby to have the WTO define exchange-rate manipulation as a form of veiled export subsidy. Any attempt to change WTO rules to incorporate exchange rates would be difficult, however, as China could be expected to veto it, analysts said.

Mr Mantega said that Brazil’s trade with the US had slipped from an annual surplus of about $15bn (£9.6bn) in Brazil’s favour to a deficit of $6bn since the US began trying to reflate its economy through loose monetary policy. He said China’s undervalued currency was also distorting world trade. “We have excellent trade relations with China ... But there are some problems ... Of course we would like to see a revaluation of the renminbi.”

If not necessarily approving of them, you have to acknowledge the thoroughness of Brazil's countermeasures to keep the real low--intervening in spot and forward markets; making its voice heard at the G20 and WTO, etc. they're playing for keeps and have gone beyond what most other countries have done despite their similar bellyaching.

So how would Brazil line up if the United States were to pursue the inclusion of undervalued exchange rates as an actionable subsidy at the WTO? Do Brazil's loyalties lie with the US, China, or mostly just with itself? That would be interesting to watch. Latin melodrama--don't leave home without it.